Gazprom Considers Small Baltic LNG Plant for Cleaner Ship Fuel

Russia's Gazprom is looking at building a small plant on the Baltic Sea to produce liquefied natural gas (LNG) as a shipping fuel, a company official said on Tuesday.

The European Union is backing tough new rules on shipping fuel, which will be phased in across EU waters, as part of efforts to cut pollution.

Ship owners are under pressure to cut the sulfur content in shipping fuels to 0.1 percent from 1 percent by 2015 in "sulfur emission control areas" in the Baltic, North Sea and the English Channel.

To comply with the new EU rules, ships should use low-sulfur fuel which is much more expensive than the heavy fuel oil currently used; install pollution control device of approximate weight of 70 tons known as scrubber or switch to LNG, feasible for newbuilds but not for most of the existing fleet.

Olga Lotsmanova, chief technologist at Gazprom's department for gas fuels development, said the world's top gas producer is looking at a new LNG plant with annual capacity of up to 1 million tons by 2020, on the shores of the Baltic Sea.

"Taking into account the tightening of pollution level rules... gas is now starting to be more and more viewed as a fuel for different types of transport," she told an industry conference, calling the move strategic.

Gazprom supplies a quarter of Europe's gas needs but both sides are trying to diversify away from each other due to political and economic reasons.

Gazprom operates Russia's only LNG plant, on the Pacific Island of Sakhalin, producing around 10 million tons of LNG annually.

It plans to build at least two more large LNG plants in Vladivostok on Russia's Far East and on the Baltic Sea, part of a move to double its global LNG share to 10 percent by 2020.

Lotsmanova estimated that around 10 percent of all ships in "control areas" will use LNG as a fuel - a tenfold increase from current levels - by 2015.

"The market of LNG as a bunker fuel is at its initial stage of development," she told the conference.

According to the European Commission, shipping companies will face extra costs of 2.6 billion euros to 11 billion euros ($3.6 billion-$15 billion) to switch fuels or to fit exhaust filters that would scrub out the sulfur in marine fuel oil.